Formal Contract before starting new business

Starting a new venture is exciting and once an entrepreneur makes some headway, he is so overjoyed at the prospect of doing business for the first time that he often makes one cardinal error - failure to get into a binding contract with his clients. Sure, initial clients usually come from past networking relationships or as referrals. But that's' no reason to skirt formalities.

The absence of a contract can delay payments and lead to even bigger problems, where a bigger client may not pay up at all! There have been instances where small business owners have had to shut shop because they could neither recover payments from clients nor afford an expensive legal battle.

"Failure of clients to pay up on time or not at all is one of the main reasons for the failure of start-ups in India." The threat of legal action often does the trick with errant clients but this needs the backing of a formal contract."

Here are the whys and wherefores of a formal contract.

1. FIRST, DETERMINE THE TERMS

A business contract must clearly spell out details such as the nature of services provided; the benchmark against which work will be evaluated; and, most importantly, the mode, manner and time of payment. There is no place for vague terms such as 'reasonable time frame' or 'subject to satisfaction'. Other critical details are terms of dispute resolution and termination of the contract. Start-ups tend to ignore the latter two terms as they want to turn a blind eye to the possibility of unpleasant developments or are naïve enough to believe that things will not go awry.

2. SEEK LEGAL COUNSEL

While all this sounds simple enough, one needs a thorough grounding in the Indian judicial system to actually draw up a contract. And, no, the Internet is no substitute for hiring legal counsel. Unfortunately, the Indian legal system does not have separate legislation for start-ups and treats all businesses alike. This is why a bigger company with more experience can stamp out a smaller, first-time entrepreneur if there are loopholes in the contract or, worse still, if there is no formal contract at all!

3. SAFEGUARD INTELLECTUAL PROPERTY

An entrepreneur is unlikely to know about the Indian Contract Act, which must be adhered to while drawing up any contract. Laws pertaining to Intellectual Property (IP) must always be kept in mind, especially if your start-up is in the creative field or any other IP-sensitive business.

4. HIRE AFFORDABLE LEGAL COUNSEL

A formal contract is the very basis of a business agreement. "These documents should be considered the core of the relationship between a start-up and its client, an advisor, employee or investor,". Therefore, it is mandatory to seek legal advice, which should be budgeted for at the planning stage.

So, regardless of how small your business is, make sure you enter into a formal contract before you shake on a deal. At the very least, your professional approach from day one will win you brownie points with angel investors and venture capitalists at a later stage!

Source: Gargi Banerjee, Moneycontrol

Condonation of Delay in case of Appeals

  Section 5 of the Limitation deals with condonation of delay in case of appeal. Since the limitation period for appeals is very short, this section is then introduced to meet the end of justice such that the purpose of justice is not defeated merely because there is “sufficient cause” is present due to which an appeal was not preferred. This section extends the limitation period. The word “”sufficient cause” is an important phrase in this section. Since the section is not a matter of right for the party who pleads the condonation, but it depends on the discretion of the court.The court must be satisfied that the delay is caused due to a genuine reason.

 

It is sufficiency of the cause which counts, and not length of delay - Expression "sufficient cause" should receive a liberal construction - As regards delay on the part of State, certain amount of latitude is not impermissible - Expression "sufficient cause" should be considered with pragmatism in justice oriented approach rather than technical detection of sufficient cause for explaining every day's delay - Matter remitted to High Court to decide the criminal revision on merits - Suggestions made to prevent delay in State litigation - Administration of justice – [STATE (NCT OF DELHI) VS AHMED JAAN. AUGUST 12, 2008]

 

Now the question arises what can be the “sufficient cause” which the court accepts-:

 

1. Illness it is the sufficient cause when it is proved without the reasonable cause that the appellant was not able to file an appeal.

 

2. Imprisonment-The imprisonment of the appellant can be a sufficient cause.

 

3. Ignorance of law can also be a one of the reason but it should be bonafide.

 

4. Mistake of fact-It should be real and unintentional.

 

5. Delay in obtaining copies of judgement can be sufficient cause also this reason is also covered in section 12.

 

6. Poverty, Infancy, Pardah

 

7. Mistake of Counsel-mistake by counsel which is not negligence.

 

But to enjoy the benefit of section 5 There should be no negligence due to inaction of the party is a prerequisite, also length of delay is not a matter of concern but reasonable explanation why the delay has occurred is the subject matter of this section.

 

In the end the court prefer liberal approach in favour of justice and favour only reasonable excuses to condone any delay in filing an appeal .However the court must be convinced beyond reasonable doubt that the delay was genuine and it must be condoned in favour of justice. Also there should be absence of negligence in order to make the cause reasonable.